China’s property downturn is set to last for years, and a drought of deals in the sector is unlikely to end soon due to a lack of investor confidence in the world’s second-largest economy, a senior Bank of America Corp. banker said.
“The real estate sector in China will likely entail a multi-year recovery timeframe,” said Martin Siah, co-head of real estate investment banking for the Asia-Pacific region. “It would be too quick to expect a swift resolution to the real estate deals issue,” he said in an interview.
While the US investment bank isn’t active in China’s real estate market, Siah said there has been a lack of transactions across the board from equity capital markets to mergers and acquisitions. “It’s hard to do deals, especially in China,” he said, adding that both domestic and outbound transactions are difficult to execute.
That assessment underscores the pessimism among market watchers about the pace of recovery for China’s embattled developers, despite a slew of steps from policymakers to shore up confidence, including pushing banks to increase financing for the sector. The property slump was among the factors that prompted a recent downgrade of the nation’s credit outlook by Moody’s Investors Service.
“Investment confidence needs to return and will take time,” said Siah.
Instead, he is positive about Japan real estate, pointing to attractions like healthy inflation and corporate reforms. That has helped attract a flurry of investors from Blackstone Inc. to Sweden’s EQT AB.
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For funds seeking to redeploy capital from China due to geopolitical risks, “there aren’t that many other sizable economies” to choose from in Asia, Siah said, giving the example of India’s real estate sector, where it takes time to deploy big-ticket funds. But Japan still has “a few more legs,” he said.
More broadly, Siah expects real estate transactions in the Asia-Pacific region to rebound next year as central banks begin to moderate interest-rate hikes and give more clarity on future decisions.
M&A deals in the Asia-Pacific real estate sector have fallen about 39% to US$102.3 billion ($137.35 billion) so far this year compared to 2022, according to data compiled by Bloomberg. Real estate M&A in China has fallen 9% on year, and is down 60% compared with 2020, when the government began a clampdown on excess debt at property developers, the data show.
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Singapore REITs
Siah, who is also Bank of America’s country executive for Singapore, said he’s positive on the financial hub’s “heavily oversold” real estate investment trust sector, despite it being “amongst one of the most oversold REIT markets in the world since the start of last year.”
A FTSE benchmark of Singapore-listed REITs has fallen about 20% since the end of 2021, which Siah attributed to their larger exposure to US and Chinese real estate.
But he called time on future mergers in the sector, which have totalled nearly $60 billion since the first tie-up in 2018, according to Siah. “We don’t expect this wave will continue because such share mergers are highly susceptible to share price volatilities.”
